India's growth projections ambitious, says Moody's

Moody's Investors Service on Tuesday said economic growth projections made by Finance Minister Nirmala Sitharaman in her Budget for 2020-21 appear ambitious given the structural and cyclical challenges facing the Indian economy.

The budget expects nominal GDP growth of 10% in 2020-21, followed by 12.6% and 12.8% in FY2022 and 2023. But, Moody's saw GDP growth rising to around 8.7% in the next financial year beginning April 1 from about 7.5% in the current fiscal.

Stating that growth outlook will remain weak, it has put real GDP growth during the current fiscal ending March 31 at 4.9%, slightly below the government's forecast of 5%. For the next fiscal, it estimated real GDP growth of 5.5%, lower than 6-6.5% projected by the government's Economic Survey.

"Growth has remained relatively weak as a prolonged deleveraging cycle and ongoing stress among non-banking financial institutions (NBFIs), which has constrained the financial system's overall provision of credit, weigh on consumption and investment," it said in a detailed commentary on the Budget.

For the next 2020-21 fiscal, it lowered real GDP growth forecasts to 5.5% from 6.3% previous estimate. And for the following fiscal, it put the real GDP growth at 6% from 6.7% projected earlier.

"The significant slowdown in financial sector credit growth from NBFI liquidity constraints and asset quality issues among public sector banks has exacerbated prolonged weakness in private investment and a material decline in consumption, due in part to financial stress among rural households and weak job creation," Moody's said.

The nominal GDP growth, it said, has also declined significantly. Following 11.2% expansion in 2018-19, the government had forecast 12% nominal GDP growth in its July 2019 budget for the current fiscal.